Much needed common sense for consumer America

I first heard about Dave Ramsey on a motorcycle forum online. I had always thought I did pretty smart things with my money as a "young kid", though there have certainly been some mental lapses. I like reading about money and money strategies so I looked him up and started listening to his radio show.

He's a no-nonsense kind of guy, his mantra is "I don't borrow money, period." That's almost unheard of in this day and age, it's the way your grandparents live, something like this could never apply to you. Paying cash for a car (or even a home in some people's case) was a complete pipe dream to me, I couldn't understand how people could have $15k for a used car in cash, and not spend it on other things.

Slowly, after listening to the radio show it started to actually make sense. I ordered his book, and while I think I've learned more listening on the radio, it's nice to have it in print that I can pass on to my girlfriend, parents, roomate, whomever.

At first, I thought his technique of eliminating debt was a bit backwards, ignoring interest rates and paying your debts in order, from smallest to largest balance. While he admits mathematically it doesn't make sense, it DOES make sense to the consumer to eliminate their debt and keep motivated while doing it. He points out that 80% of the problem with being in debt, being broke, and staying there is habit. You're used to going out to eat all the time and buying things you want, it's no wonder you're in debt. When you can stop the habit and focus on the goals ahead you will make progress. His 'debt snowball' is set up to maximize your success by keeping you motivated.

Let me be clear, this is a major lifestyle changing plan if you decide to run with it. It will work, and you will be debt free, but it takes total commitment and a lot of time and patience. People don't become debt free overnight, just like most people do not get wealthy overnight. And those that do, don't stay that way.

Luckily for me, I'm making my last student loan payment this month, and after that the only debt I have left is my motorcycle. Dave would tell me to sell it and be debt free(And really he's probably right), but I make enough money to be comfortable with the payment, so now it's just a matter of me paying it off as quickly as I can. I can live with that.

The book is a good, short read. Especially if you know nothing about Dave Ramsey and his ideas. If you've been a long time listener, you can probably get away with not buying the book, though do it anyway so you can read it and pass it on to someone else.

The general idea of his plan is as follows:

First, get current (and STAY current) with all your debt, as in not behind on any payments. Create a written monthly budget, assign every dollar of income to something and stick to it. If you're married, you and your significant other HAVE to be on the same page about this. When you're current and making minimum payments on everything, save $1000 for a "baby" emergency fund. This money is to be used only for and emergency. Dave points out a lot of budgets fail because of an unexpected home repair, car repair, medical bill, etc. You loose motivation and you lose control of your finances.

Once you have your emergency fund, it's time to start the debt snowball. List all your debts smallest to largest (not counting your mortgage) and pay the minimum payments on everything but the smallest debt. Put as much money on this as you can. When that debt is paid, you apply all that money (plus the minimum you were paying on the debt) from your smallest debt to the next one in line, and so on and so forth. Eventually, you can see that you could be paying thousands of dollars a month on one debt towards the end.

After your debt snowball, congratulations you're debt free (expect for the house). This is when you save for your fully funded emergency fund (3-6 months of expenses), and then from there it's saving for retirement, kids college, investing, and maybe the most important - giving.

Before listening to the radio show and reading the book, I would have had no confidence in ever being able to buy a car with cash, or the thought of being debt free. I just thought it's just a way of life. Now I'm anxious to start my debt snowball, eliminate my last debt, and start my full emergency fund (and so on and so forth). There are many good stories in the book from normal people all over getting fed up and "living like no one else so later they can live like no one else".